For Yogi Berra (assuming he still drives) and millions of other Americans, it’s déjà vu all over again.
Prices at the gasoline pump are soaring. In response, officials in Washington are talking about cracking down on price gouging and eliminating oil company tax breaks. It’s just like 2008. And 2006. And 2001. And the late 1970s, for that matter.
Once again, it’s worth asking if we’ve learned anything about the price we pay at the pump—and what really drives gasoline costs.
First, about those prices. With the average cost of self-service regular gasoline nearing $4 a gallon nationwide, gas prices have jumped roughly 40 percent this year. No question, that’s a big increase.
But in the context of historical prices, $4 a gallon does not look so extreme. On an inflation-adjusted basis, a gallon of gas costs only slightly more than it did in 1918.
Or look at the price of a gallon as a percentage of per capita personal income; the latter, measured in 2009 dollars, has doubled over the past four decades. Then factor in average fuel economy of U.S. passenger vehicles, which has increased some 40 percent since 1980.
If the historical context fails to improve your mood, consider the price at the pump in many other countries. It’s roughly double the U.S. price per gallon in oil-producing Norway, and it’s close to that throughout the rest of Europe, in Japan, South America and so on.
Here’s the point: By many yardsticks, U.S. motorists have enjoyed bargain prices at the pump—and still do. However, that’s not to say we now must simply accept gas prices of $4 a gallon or more.
The most effective way to quickly reduce the impact of gas prices is to consume less. Remember, we’ve seen this episode before. The oil-price shocks of the 1970s prompted efficiency gains and reduced consumption that produced the lowest inflation-adjusted gas prices in many decades.
Unfortunately, that in turn led to sport utility vehicles, minivans and more miles driven per person-all wrong choices. Now we could get another chance.
Some countries, of course, do not like market-based solutions; they use government subsidies to keep gas prices really low. An example is Libya, where the cost is less than $1 a gallon. Just remember to keep your head down while tanking up there.
4/29/11 (c) 2011 Rochester Business Journal. To obtain permission to reprint this article, call 585-546-8303 or e-mail firstname.lastname@example.org.